Small Business

If the Patent Reform Act Passes


Legislation changing the current system, by granting patents to the "first-to-file" vs. the "first-to-invent," has a good chance of passing

Last month, a bipartisan group of leaders from the Senate and the House introduced identical patent-reform legislation that experts believe has a good chance of passing. The Patent Reform Act of 2007 is similar to legislation that has been tried in years past but never succeeded, says J. Warren Lytle, an intellectual property lawyer at Sughrue Mion, in Washington, D.C. Lytle spoke recently with Smart Answers columnist Karen E. Klein about the proposed changes to intellectual property law and how they might affect small-business owners (see BusinessWeek.com, 5/14/07, "A Higher Hurdle for Inventors"). Edited excerpts of their conversation follow:

This legislation, introduced by senators Patrick Leahy (D-Vt.) and Orrin Hatch (R-Utah), and Representatives Howard Berman (D-Calif.) and Lamar Smith (R-Tex.), is similar to legislative reform introduced last year and even before that. What chance does this version have of becoming law?

This year, all the stars seem to be aligned. It looks very favorable that some reform will go through in this Congress before the fall, when the concentration is going to shift to the 2008 elections.

What does the bipartisan bill do?

It updates current patent laws and provides reform for patent seekers and patent holders. Among many important reforms, the bill would create a pure "first-to-file" system. The U.S. system is the only one in the world that still grants patents to the first inventor, rather than to the first person to file a patent application. The bill also creates a more streamlined and effective way of challenging the validity and enforceability of patents.

When we're talking about the "first-to-file" right, what does that mean?

The U.S. has been unique among all other countries because we have this "first-to-invent" system, rather than a "first-to-file" system. What that means is that diligent inventors get the patent if they can prove they had the idea first and they began using it commercially, even if they aren't the first to file for a patent.

Smaller companies might not have the resources in place to generate patent applications quickly, as large corporations can do. So in the past, the entrepreneurs have been happy with the "first-to-invent" system because they get the rights if they can show that they've invented it and they've been selling the product.

So if the legislation passes, will this be a bad thing for small companies and inventors?

It'll certainly make it even more important for them to file for a patent for their inventions and new products right away.

What are the reforms proposed on the back end of the process, in terms of challenging a patent's validity?

The legislation establishes something like a "post-grant opposition system." This means that after a patent has been granted, there will be a short period of time in which someone can challenge it. So if a patent issues, and somebody in your company has been watching for it, they can initiate an opposition action within the patent office to oppose the patent and there will be a mini-trial held in front of the patent administration office to determine the validity of the patent.

Other countries, like those in Europe, have this kind of system but if this legislation passes, it will be a first for the U.S. That means an entrepreneur wouldn't have to go to federal court to invalidate a patent, which is very costly, with long delays and a jury.

What are the implications of this for the small-business owner?

Well, a small company that monitors the patents coming out in their area of expertise might be able to take advantage of this opposition system immediately instead of waiting to get sued. If a patent issues that looks close to what you're doing, or that might give you problems, you could initiate an opposition to it.

The downside is that if you petition for opposition, and your petition is denied, you can't later seek to raise the same issue in a federal civil lawsuit. You can still file the suit later, however, if you've not taken advantage of the opposition system.

What's the motivation for this reform?

The goal has been to reduce the number of patents that should not be granted every year and to reduce the amount of expensive patent litigation that gets brought into the courts. There has been a lot of litigation resulting from people who get patents on inventions that are "obvious"—or not novel.

What happens is that they get these patents and then they assert them against businesses that are generating money. We call these people "patent trolls"—they get a patent, they don't make that product, but they legally go after companies that are producing that product. The word troll arises from the idea that there's a "patent thicket" out there that innovative companies have to navigate in order to get a product out. And, at the worst time, a troll emerges from the thicket with a lawsuit.

How costly is it to get a patent these days?

If you've got a mechanical invention, it'll cost between $5,000 to $10,000 including attorney's fees and filing fees. If you're talking about electronics, the cost goes up to more like $8,000 to $15,000. In the biotechnology industry, the cost is even higher.


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